2001 (2) TMI 305 - AT - Income Tax

Revenue appeals dismissed, CIT(A) decisions upheld. Tribunal affirms allowance grants, manufacturing activities. Deduction under section 80HHC for processed granite upheld.

ASSISTANT COMMISSIONER OF INCOME TAX. Versus VIJAY GRANITES (P) LTD.

The appeals by the Revenue were dismissed, upholding the CIT(A)'s decisions. The Tribunal affirmed the allowance grants for additional depreciation, ... - Issues Involved:1. Grant of allowances (additional depreciation, section 80-I, investment allowance)2. Deduction under section 80HHC for export of granite3. Addition towards closing stock valuationIssue-wise Detailed Analysis:1. Grant of Allowances:The first common ground in all four appeals relates to the directions given by the learned CIT(A) that the grant of allowances by way of either additional depreciation or under section 80-I or as investment allowance for the assessment years under appeal shall not be withdrawn. The Tribunal noted that a similar issue had been considered in the assessee's own case for the assessment years 1986-87 to 1988-89, where it was concluded that the activities of the assessee constituted the manufacture of an article or thing within the meaning of section 32A of the Act. The Tribunal upheld the assessee's claim, confirming the order of the learned CIT(A) on this point.2. Deduction under Section 80HHC:The next issue concerns the deduction allowed by the learned CIT(A) under section 80HHC for the assessment years under consideration. The assessee, a closely-held company engaged in quarrying and processing granite stones for export, claimed this deduction. The AO disallowed the claim, viewing granite as a mineral, which would be excluded from section 80HHC benefits under section 80HHC(2)(b). The learned CIT(A) decided in favor of the assessee, relying on the Hyderabad Bench's order in the case of Evershine Granites (P) Ltd. and the amendment made by the Finance (No. 2) Act, 1991, which extended benefits to processed minerals and rocks, including cut and processed granites. The CIT(A) reasoned that granite stones, in commercial parlance, are considered rocks, not minerals or ores, and thus eligible for the deduction.The Revenue appealed, arguing that the assessment years in question were prior to the introduction of the XIIth Schedule to the Act, and hence the prevailing provisions should apply. The Tribunal, after considering the rival submissions and the CBDT Circular No. 729, dt. 1st Nov., 1995, concluded that the circular clarified that value-added granite would qualify for deduction under section 80HHC. The Tribunal deemed the circular explanatory and applicable retrospectively, confirming the CIT(A)'s findings.3. Addition towards Closing Stock Valuation:In ITA No. 2025/Mad/92, the Revenue raised an additional ground concerning the deletion of the addition towards closing stock. The assessee had consistently followed a method for valuing its closing stock, which the AO disturbed for the first time during the assessment year 1989-90. The CIT(A) observed that the assessee had only been exporting granite stones and had no instances of local sales. The method of valuation, pending inspection by foreign buyers, was consistent and had been accepted in previous years. The CIT(A) deleted the addition, and the Tribunal found no infirmity in this order, noting that the method had been accepted by the Revenue till the assessment year 1988-89.Conclusion:The appeals preferred by the Revenue were dismissed, confirming the CIT(A)'s orders on all points.